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Cryptos and blockchain dominate the headlines in the media moving more mainstream everyday. So it is not surprising that investing in blockchain is a hot topic too, even to the degree that ‘clouds could get in the way’. We sat down with a no-nonsense fully focused professional investor to demystify the topic of blockchain investing.
Meet Maven 11’s managing partner Balder Bomans, who will answer 11 top of mind questions around blockchain investing. Maven 11’s VC 3.0 investment approach is a key differentiator in the way they place investors’ capital with the most attractive blockchain ventures. For the Why, Where, What and How’, keep reading.
“I would go one step further than just a good investment; it is investing in an inevitable future. It is good investing and doing good. Blockchain technology is supported and driven by a global trend from a digitized internet driven world to a world of data driven decisions and new structures in terms of power and control. More than technology, this is about the powershift from central control to trust through decentralization, part of the rise towards self-determination as well as the call for equal access for all. Access to education, to work, but also to capital without having to go through the current levels of control and sign off in the financial services industry we know today. New technologies and methodologies will give a more accurate risk assessment than the outdated rating models. For example, the combination of data driven – in the moment – decisioning with transparent ownership that cannot be tampered with, is an appealing foresight for people, business and society.”
There really are two sides to this question and therefore in his answer: timing and the stage of development of the segment. “In investment terms there is a golden rule throughout the ages. The first massive hit in terms of ROI is for the owner/founders who know of something new happening. People in this wave are in the inner circle. The second wave of high returns, with 50-100 multiples, is for the early-stage participants. This is now in the case of blockchain, and, this is where we, Maven 11, operate. This is the stage where courage needs to be combined with hard and deep research, knowledge and network. We professionally target and select the hidden gems in this emerging sector.”
Which leads us to the second element around timing and segment. “This is investing in, not only early stage companies, but also in a new and emerging segment. Jumping back twenty years in time gives us a good comparison. Investing today in blockchain is very much like investing in internet-based solutions or core technology before we had the browser. Insiders could see the full potential of the internet long before people had easy access and the benefits became more apparent to a wider community. We can all see the outline of a new ‘blockchain world’ as if it were a building emerging. We see the foundation, we see it taking shape but only a few on the inside understand the full potential, the shape, purpose and use of the building. This moment and our focus form our sweet spot, and this is why now is the time to step in, before blockchain opportunities go so mainstream the return flattens out.”
The risks are real, the opportunities are great and real too, so much depends on a professional approach mixing industry insights with sound investment practices.
“Blockchain is a nascent ‘segment’, where investing without dedication and network quickly turns into gambling. Finding, getting access to the teams and being able to invest in the edgy opportunities gives the insights in a researched return and risk/reward balance. Blockchain investing by its very nature is extremely high paced and application domains evolve quickly. Being active in the industry with 100% focus has not only enabled us to specify the most interesting domains, it also gives us access to early stage teams that are building in these domains. They seek specialist investors who will support them from ideation to development up to go live ad beyond. At that moment in time, they need critical mass in their ecosystem, which I will explain with an example next.”
“The investor-venture relationship therefore cuts two ways in blockchain and makes it different from any other type of investment. It is a joint journey, not a financial transaction with intermittent checks. Understanding blockchain is a must, understanding blockchain value metrics is the second must and they are vastly different.”
“Access to the teams that are developing blockchain protocols and solutions (dealflow) is key. As stated before we must have a dedicated focus in this area to be taken seriously. Building a vibrant network of VC’s, founders, supporters and experts is essential and you do that by participating in ideation, creation, building and supporting initiatives early on.”
“Our analysts work closely with the portfolio companies on business modelling, valuation and in this way really get to know the teams. Ultimately, loyalty and tenacity count and if you have a solid reputation, the community spreads the word and delivers you invitations to look at new opportunities before everybody else.”
“Teller is a perfect example of making things work better in today’s world with blockchain solutions. We all know that capital does not really flow efficiently to those who need it. A range of outdated credit scoring mechanisms often apply credit scores on outdated and scattered views on past performances that do not reflect the current health of a (small) business.
Teller is an algorithmic credit risk protocol, built to enable the creation of decentralized lending markets that can offer unsecured loans. The protocol’s unique cloud-based infrastructure can connect to privately computed credit and banking data to generate individual loan-terms based on a users’ creditworthiness. Teller Protocol was designed to develop decentralized loan products, without collateralized debt, reducing consumer risk, costs and time. A good example of this type of ‘decentralised finance’ or DeFi might be offering lending opportunities to farmers in remote areas whereby we turn for example a healthy harvest of corn into a credit score. This is where ‘old world’ money (as a liquidity provider) meets new world principles (credit assessor and distributor) to really advance the economy and generate well balanced access to capital in a totally new way.”
“Much of this work is like in any other venture capital operation: network and research. However, the pace is much more tense in the amount of teams and ideas we assess. In terms of deal flow it is not only our reputation, as a specialist investor, that is important but we also see intense collaboration in the deal-flow between venture partners. The latter works through active referrals and recommendations.”
“We literally see thousands of ideas passing our desks. This really requires a dedicated quick scan approach with a very dedicated and specialistic research team. Once we see value in the team and the proposition, we go into the analysis phase. The analysis is done on the market opportunity, the protocol, competition, etc. What is different too is that the cooperation is much more intensive. As in the case with Teller, to whom we were introduced through a venture partner, we actively support them throughout the build stage and during the go live when the protocol is handed over to the blockchain community.”
“It might be best to continue with the Teller example to explain this. Once the protocol is live and active in the community, investors like us and others can lend liquidity to the capital pool, or in layman terms provide ‘capital for lending’. With the unique Teller credit scoring this money is placed in the market. For this liquidity the investor gets a Teller token, which is a digital and liquid – tradable on platforms - instrument or asset. “
“An interesting element in terms of blockchain is that the token is also a voting instrument on new partners joining the eco systems and as such a ‘hygiene factor’ to build and maintain trust in the pool and the ecosystem. Every single link in the blockchain therefore helps to build trust, volume and value. In terms of time to a return on capital, we see that blockchain teams and investments turn into liquid assets within 18 months, which is faster than generic VC. Simply said, much more is expected from a blockchain investment fund. You are a stakeholder, a consumer of the service and an enterprise in the value chain. Investment is almost the wrong word, it really is about participation, you really have to look at this as being an ecosystem builder - with sleeves rolled up.”
“In this early-stage world, we aim for teams of entrepreneurs with whom we can build amazing products and services. We back bold ideas which have the potential to generate 100x returns. Obviously, some exceed that number, some meet it, others do less and in rare cases some fail to bring any return”.
“In the domains in which we foresee traction we like to invest in entrepreneurs in the pre-seed and seed stage. These stages we deem to be the best risk reward opportunities for a nascent asset class like crypto. Because we are in constant contact with the teams, there are very few surprises. However, some teams can still not deliver what we expected.”
“Risk and reward differences with traditional VC/PE environments circle around two themes: risk and liquidity. Blockchain or crypto assets are new in that we are investing in early stage ventures, which are illiquid; but also early stage protocols/ventures which are liquid. By working this way, we balance a mix of traditional VC/PE and equity markets, with a somewhat different risk profile. If a founder is finished building the product (s)he can generally offer this to a global target market, as crypto is obviously global. If they are successful in doing so, we generally see a sizable step up in valuation, as the product is offered and incentivized by a token. The liquidity profile of blockchain based assets makes it an extra interesting asset class, as you are able to invest early stage with good risk rewards, and are able to get liquidity reasonably fast.”
“When it comes to our liquid ventures, we closely follow indicators like the total value locked in the protocol and the value of the contracts built on top of that particular protocol. Moreover we watch the activity within the wider ecosystem. How many builders and users are active? Increases or decreases might indicate respectively a value gain or loss. The activity dynamic is a main indicator of the energy and potential value of a protocol. Uptake is a main indicator for success and this is also - again - why this is such an ‘active sport’ for investors like us.”
“Blockchain has the potential to change many aspects of our society over time. For example, how we use and perceive money, how economies work, how to identify ourselves, how infrastructures work, how healthcare is organized, how to access education, how to govern, and beyond all of the above. All of these show a natural product fit with the core assets of blockchain technology: transparency & trust. Generic universal needs, coupled with trust and transparency are the foundation of many of these early projects, test cases or for real.
We are of the opinion that we are still building a necessary (financial) infrastructure, and see that as an interesting investment domain alongside DeFi and Web 3.0. We see huge opportunities and potential in the (tokenization of) financial services industry, DeFi. This is one of the first markets that now actively embraces blockchain technology. Most large asset firms invest in blockchain, regulators are getting their head (and policies) around it and large banks are all experimenting with it.
Anything transactional that changes hands and requires trust and irrevocability and fair access for more (if not all) players will require blockchain technology over time. It must be noted that much is being done to make the technology itself more efficient and faster and greener. This (re-) evolution is where the money is. “
“The crypto industry in general, and crypto assets specifically, have a very different cycle from most other assets. What is clear by now is that this is a new and very differently behaving industry. The important thing is to look at Maven11 as a team, in the same way we look at the teams we invest in.
People first, focus next, track record and analysis then follow. The way we communicate and stay in touch with you, transparent and open. Our focus on pre-seed, seed investments next to, small cap and large cap tokens, spread across three segments (infrastructure, DeFi and web 3.0) has proven to deliver results. We balance opportunity and risk and combined with our nearly obsessive focus will convince you of your choice.
Finally, it can be noted that we, as a team, have experienced multiple cycles in the crypto and traditional markets: bull and bear, and we are equipped to navigate them. We eat, breathe and live blockchain and invite those hungry for change and ROI to join this journey with us.”
Still curious, please reach out and we will take a deep dive with you.